Monday, June 30, 2008

Not M-Shaped After All: Taiwan's Economy and the DPP's Future

Note: this was written about a month ago when irrational exuberance over the Ma administration's opening to China was still running strong. Since then, the outlook for Taiwan's economy has become much bleaker with higher oil prices, higher interest rates, and an imploding stock market.

One of the great myths of the 2008 presidential election in Taiwan was that the economy was in deep trouble. Other than rising consumer prices, the most important piece of evidence for that thesis was the supposed erosion of the middle class. Taiwan was said to have become an M-shaped society: a society in which the income curve has two peaks, one in the lower middle class, and one at the top. Michael Turton blogged on this myth back in 2006 and it has become entrenched as piece of received wisdom in the Taipei view of the world.

In late May, the China Times ran a series of articles that examined the evidence. Despite a headline blaring the paper's Blue editorial line "Middle Class Suffers Serious Erosion since 2000," the articles actually explain that Taiwan is not an M-shaped society and that its middle class is holding up rather well considering the tremendous changes since 1980.

Let's get to the facts. According to data from the Taiwan Social Change Basic Information Database (台灣社會變遷基本調查資料庫), 44.2 percent of Taiwanese households were classified as middle class. In 2005, 39.68 percent of Taiwanese households were classified as middle class. Over the same period, middle class households' share of adjusted national income also fell modestly from 39.5% to 34.26%. Of the households that left the middle class, 57% moved into the lower class (defined as a household with income of less than about NT$680,000) while 44% actually moved upward to join the ranks of upper class households earning more than NT$1.3 million per year.

Significantly, the number of people reporting that they earn a "reasonable" income has increased from 85% in 1985 to 90% in 2005. Professor Cai Min-chang of National Taipei University explained this by a change in values. Taiwan's educated workers no longer see equate high income with success. Instead, they tend to value having interesting work from which they derive a sense of achievement. This suggests that at least a few of Taiwan's downwardly mobile may actually be highly educated people who are opting out of high income careers at least temporarily.

These figures also suggest a hypothesis that if correct would have important implications for Taiwan's political future. This research does not mean that there are no economic problems. To the contrary, they suggest that the brunt of Taiwan's economic problems are being borne not by the cosseted and fretful middle class, but rather by its working poor.

Taiwan's working poor have traditionally been the backbone of the DPP's political support. When they elected Chen Shui-bian in 2000, they were expecting that their lot would improve. While Taiwan's middle class has fared reasonably well in recent years, the same is probably not true for the Taiwan that works on construction sites in Taichung County, drives trucks in Kaohsiung, and dips plastic in moldings in Taipei County. It can be plausibly argued that the DPP was unable to effect much social change to help its constituents since the Legislature has been (and still is) firmly in the grip of an unholy alliance between some of Taiwan's most reactionary elements.

Still, the DPP's striking lack of imagination after it came to power left it struggling for a veneer of middle class respectability. The party's political elite, whose origins lie in the urbanized professional middle class, turned its gaze away from its working class constituents. The travails of the Chen family with its modest Sogo shopping sprees, petulant dentist daughter, greedy doctor son-in-law, and Berkeley PhD candidate son belonged to a narrative far removed from the concerns of the farmers and workers who supported them.

Ma Ying-jeou promised Taiwan's working people that they will soon have good jobs. Yet given the research cited in the China Times articles, the Ma administration's policy goals are misguided in the short term and politically suicidal in the long term. Premier Liu is promising to "rebuild a solid middle class" and grant salary increases to civil servants, teachers, and military (the DPP supports these as well) while his well-intentioned Minister of Labor is forced to admit that she cannot push for a rise in the minimum wage because that would increase inflation. As if an automatic raise for Taiwan's millions of public sector workers would not also increase inflationary pressure thing while leaving people working at 711 even farther behind.

The hypothesis, then, is that the DPP lost power because it failed to deliver good jobs to Taiwan's long suffering working class. Many of those votes went to Ma Ying-Jeou in March. But it seems that this Ma is ignoring his gift horse.

The Blue media likes to disingenuously recommend that the DPP 'return to its core values.' What they really mean is that they hope that the DPP will endorse the kind of center-left policies that failed to gain the TSU even one seat in the legislature while abandoning the Taiwanese nationalism that binds the DPP together. While the DPP has wisely ignored this foolishness, it would has the opportunity to expand its base again by reconnecting with Taiwan's working classes if Ma's vaunted opening to China and his antiquated developmentalism fail to deliver the jobs that he promised.

where a middle class household is defined by the international standard of a household whose adjusted income falls between 75% and 115% of the

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